UK Issues Russia Sanctions Warning to Ship Brokers
The U.K. this week issued a new warning to shipowners and brokers seeing large profits from selling older ships to unknown buyers, saying they need to make sure they aren’t selling to a person with ties to Russia or who plans to violate Russian oil sanctions.
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A new guidance from the Office of Financial Sanctions Implementation outlines what type of due diligence shipowners should follow before selling their vessels to buyers in third countries along with several “key risk indicators” that may indicate a buyer is trying to evade Russia sanctions.
OFSI said Russia is increasingly looking to buy second-hand oil tankers that it can use to transport products without using services from the U.K., the U.S. and other countries implementing the oil price cap (see 2405150025). “As such this market is likely to remain lucrative to prospective sellers,” the U.K. said, warning that ship buyers may risk violating sanctions if they don’t carry out due diligence.
Shipowners and operators should do enough diligence to identify the ultimate beneficial owner of the proposed buyer or the true “end-user” of the vessel, the U.K. said. The country said that the true owner or end user “is unlikely to approach sellers directly or be named as such on paperwork,” and often uses a “layered approach” to hide ownership. “Closer scrutiny of intermediary companies and apparent end-users can uncover discrepancies,” the U.K. said.
Sellers should review the contact details of any potential purchase, determine where the funds are coming from, and obtain “copies of identification” of the buyer’s beneficial owner, the U.K. said. They should also verify that information against third party databases, media and other “market intelligence.” The U.K. urged ship brokers to “implement a system of ‘red flags’ into their due diligence processes.”
The guidance includes a host of “risk indicators” that may signal a buyer is looking to use the ship to evade sanctions or that may indicate more due diligence is needed:
- a transaction involves a vessel older than 15 years
- a bid to buy a ship is “materially above market price” or inconsistent with the quality and age of the vessel
- non-specific or misleading vessel information in the trade finance documentation
- a transaction “inconsistent with normal pre-invasion geographic trade patterns”
- a transaction involving a vessel with “deliberately obscured legal ownership”
- the buyer is involved in the trade of restricted or high-risk goods
- the buyer is located in a country where the market for second-hand ships has risen "significantly" since Russia became subject to broad sanctions
- the buyer has ties to Russia or sanctioned Russian entities
- the buyer “uses complicated structures to conceal involvement”
- the buyer’s personal information is “suspiciously similar to any found” on sanctions lists
- the buyer uses difficult to trace or “untransparent” payment methods, or is “resistant to providing additional information when requested.”
The U.K. said shipowners and brokers should follow through with a deal only “where they are confident that a process of cross-checking of these risk indicators provide[s] reassurance that compliance thresholds are met.” The country warned that violators may face “large financial penalties or criminal prosecution.”